Mortgage Millions

How Washington and Idaho are using millions meant to ease the foreclosure mess

Alexa Young hopes SNAP can help save her from foreclosure and endless legal paperwork.

Alexa Young is losing her will to fight. She’s trying for a third time to strike a deal with her bank, and she knows that she may be forced to sell her house.

“It would be pretty tough,” she says of leaving her north Spokane neighborhood. Her dad lives a block away and her two sons know 18 other kids in the area. “But it is what it is. After a while, they just wear you down.”

After a divorce and medical problems in 2008, Young, 42, got a three-month forbearance from her bank. She thought that meant she had those months paymentfree to catch up on her other bills, and that those months’ payments would be moved to the end of her mortgage. But when the bank billed her for all three months at once — about $6,000 — she couldn’t pay and missed a payment for the first time ever.

“It felt like a scam to me,” she says.

She turned to SNAP, a Spokane nonprofit, for help and she’s now working with an attorney there in hopes of restarting her payments and avoiding foreclosure.

SNAP, which offers free loan counseling and legal help, among other services, is hoping it will soon be able to help even more people — with money from five of the nation’s largest banks.

As part of a massive mortgage settlement between the banks and attorneys general from 49 states and the District of Columbia, states received multimillion-dollar payouts. To allocate Washington’s $54.2 million, the state Attorney General’s Office has formed
a committee of legislators, attorneys and representatives from housing
and financial groups to dole out the funds to nonprofits working on
foreclosure issues. SNAP plans to apply for some of that cash.

FORCLOSURE FIGURES

Foreclosure rates across the countryslowed at the end of last year as banksnegotiated the settlement, but they’veticked back up since the deal was struck.Nationally, about 1.4 million homes arecurrently in the foreclosure process —about 18,000 of them in Washington andfewer than 6,000 in Idaho. In May, 2,445Washington homes received foreclosurefilings — notices of payment default,auction or bank repossession — and 128 ofthem were in Spokane County, accordingto RealtyTrac Inc.

— HEIDI GROOVER

The
deal stretches back to 2010, when the states sued the banks for illegal
lending practices, like signing foreclosure documents without a notary
present. The settlement, finalized this April, outlines how $26 billion
will be distributed: some as credits to banks for “relief to borrowers,”
some as direct payments to homeowners and the rest in payments to
states.

In
the big picture, the payments to the states are small — just $2.5
billion of the total $26 billion — but federal officials have praised
the deal as relief for suffering homeowners and an important step for
preventing future foreclosures.

The
settlement encouraged (but didn’t require) states to use their funds
for education or financial assistance programs that would help offset
the effects of foreclosure or prevent foreclosures from happening in the
future.

States like
California and Arizona, both hard hit by the foreclosure crisis, have
come under fire for sending part or all of their payouts into the
state’s general funds to plug budget holes. Georgia is using its money
for programs to help attract new businesses; Missouri’s will go mostly
toward higher education. Idaho got $13.3 million, and legislators sent
most of it to the state’s general fund.

Washington
Assistant Attorney General Dave Huey says states that send the money to
the general fund could face problems in the future. Arizona lawmakers,
for instance, are awaiting a judge’s ruling on the legality of using the
money to balance the state’s budget.

“We’re
doing it the way the settlement provides — the way it was intended,”
Huey says. “My personal view is that states that just turn over the
money to the Legislature for the general fund are certainly violating
the spirit of the agreement and may be violating the letter of the
agreement.”

Huey was
Washington’s lead negotiator in the settlement and helped to form the
Washington Consumer Foreclosure Remedies Fund Committee, which will
select which groups receive the grants. The process is open to
nonprofits, tribal organizations and local, county or state government
groups that work on housing counseling, mediation or foreclosure
assistance. Applications are due at the end of the month.

They’re
looking for the groups that’ll make the most impact for people in the
hardest hit areas of the state. Since Eastern Washington escaped some of
the harshest effects of the foreclosure crisis, most of the money may
end up going to groups from the west side, Huey says.

“Certainly
any proposal from a group in Spokane or Yakima would get full
consideration,” he says. “The committee has their discretion, but one of
the things they should look at is how hard hit a particular area is.”

Majken Ryherd, a lobbyist
whose been working on behalf of Washington’s Statewide Poverty Action
Network who’s one of the committee members, says her priority is finding
programs that empower consumers.

“Can we catch people farther upstream so they don’t even get into this crisis?” she says.

The
Poverty Action Network supports poverty-fighting programs across the
state, including efforts to protect borrowers from bad lending
practices. She says it’s “tragic” that some states have diverted funds
to their general budget.

“These practices were wrong and consumers should be righted,” she says.

The
Idaho Legislature allocated $500,000 — just less than 4 percent — of
its total $13.3 million to nonprofits and put the rest in its general
fund. Idaho State Representative Wendy Jaquet, D-Ketchum, who sponsored
the bill that divvied up the money, says that’s because the state’s
budget has been hit hard.

“The
idea was that many revenue streams have suffered because of the
foreclosure crisis,” she says, using sales tax as an example. “Some of
the guidelines [about how states should spend the money] talked about
the public good. In my mind the public good was for everybody, not just
the folks who’d been foreclosed on. They were getting assistance in many
ways.”

But State
Representative Judy Boyle, R-Midvale, was upset that money went to the
general fund, which she calls a “huge black hole.”

“The people who lost their homes by far lost the most, not the general fund,” Boyle says. “It’s a fairness issue.”

Back
in Spokane, SNAP’s housing counselor and program manager, Monica Lloyd,
says the grants could be crucial for groups like hers to continue
meeting the needs of people facing foreclosure. Many of the people she
counsels are between the ages of 45 and 60, she says, which means
they’ve often lived in their homes for a long time without ever having
to face the possibility of foreclosure.

“People
who’ve never been in this situation before are finding themselves in
this,” Lloyd says. “This is not about a certain area of town or a
certain economic group. Everyone is being affected.”